Sales of gaming consoles underwent palpable growth in 1H21 thanks to the release of new consoles as well as demand that had previously been deferred in 2020 due to material shortages. Moving into 2H21, however, disruptions in logistics/transportation and the further spread of the COVID-19 pandemic led to less-than-expected sales volumes during the holiday season, estimated in total annual sales of 51.257 million consoles for the whole 2021. While the Nintendo Switch remained the market leader with sales of 26.19 million units, about 14.31 million units of the Sony PS5 were sold, compared to 8.14 million units of the Microsoft Xbox Series X|S.
As the aforementioned issues related to the pandemic, logistics, and shortages gradually become resolved, TrendForce expects gaming console sales for 2022 to reach 57.94 million units, a 13% YoY increase. Although the Switch will likely retain its market leadership, sales will hold flat and begin to show signs of decline, as the console enters its fifth year. TrendForce expects Nintendo to release a refreshed version of the Switch console in early 2023 in response to gradually declining sales.
After expanding the PS5 user base, Sony is expected to make a heavy push for its next-gen VR products, the PS VR 2, which will likely be released at the end of 2022. At the same time, Sony will continue to strengthen the development of both games with VR content and VR-related accessories, which can further improve the gaming experience of PS VR users. Microsoft, on the other hand, has placed an emphasis on not only its Xbox Cloud Gaming streaming service, but also the acquisition of game development studios to increase its exclusive game titles, attract consumers, and weaken its competitors. Hence, Microsoft may potentially release its own affordably priced game streaming boxes this year to be used in conjunction with cloud-based game streaming services. However, due to the nature of Xbox Cloud Gaming as a cross-platform service compatible with, among other devices, the previous-gen Xbox One, consumers may in turn be less willing to purchase the Xbox Series X|S, thereby lowering annual sales of these consoles and widening the sales gap between the Series X|S and their competitors.
Switch-like handheld gaming consoles will continue to appear
Rising sales of the Nintendo Switch consoles have led other brands to release similar products in response. In addition, the barrier to entry in the handheld gaming console market has been significantly lowered now that Qualcomm is able to supply chips, reference designs, and dev tools. With brands now willing to cross over to this space, the market may see the emergence of multiple Switch-like handheld gaming consoles in 2022.
Unlike prevailing gaming consoles which have closed ecosystems, products such as the Steam Deck are based on open platforms that are compatible with gaming contents and streaming services available on PCs and mobile devices. As such, these handheld gaming consoles are not an absolute requirement for consuming game content, and consumers may still prefer using their existing PCs or mobile devices for such content.
As well, brands that look to release their own handheld gaming consoles will not look to compensate for reduced hardware profitability through software sales. As a result, these consoles will be priced relatively high, at an expected US$399 and up, which may negatively affect consumers’ willingness to purchase them. Even if certain brands make an attempt at handheld gaming console production, sales of these consoles are expected to remain mediocre, without making much of an impact on the current gaming console market.
At Gamescom 2021, Microsoft announced that it will extend its game streaming service (Xbox Cloud Gaming) from PC and mobile devices to game consoles starting on Christmas Day this year. In addition to supporting the new consoles Xbox Series X/S, Xbox Cloud Gaming will also be compatible with the Xbox One models. TrendForce’s investigations indicate that the Nintendo Switch remains the mainstream option in the consumer market and is expected to reach 30.13 million units in annual sales for 2021. The PlayStation 5 consoles, which have been in severe shortage since its release, will take second place with annual sales of 17.61 million units, while the Xbox Series X/S will take third place with 8.66 million units sold this year.
Xbox One owners will comprise the majority of Xbox Cloud Gaming users on game console platforms
Microsoft has been making long-term efforts to promote cloud-based game streaming services. One such example includes the improvements that it made to its web browser to better support Xbox Cloud Gaming and permit the service to run on PC and mobile devices, with official PC and iOS releases taking place in June 2021. Microsoft’s announcement of game console compatibility with Xbox Cloud Gaming represents yet another step taken by the company towards its goal of extending game streaming services to all platforms.
As previously mentioned, Xbox Cloud Gaming supports not only the latest Xbox Series X and S consoles, but also the previous-gen Xbox One models. This wide compatibility can primarily be attributed to the fact that game streaming services have relatively low hardware requirements, thereby making it compatible across virtually all console hardware. The other reason is Microsoft’s aim to quickly expand the user base of Xbox Cloud Gaming. After all, very few people currently possess Xbox Series X/S consoles because these consoles have only been recently released, and their sale volumes have been constrained by the severe shortage of electronic components. Hence, the ability to quickly expand Xbox Cloud Gaming’s user base is contingent on adoption by current owners of Xbox One consoles, whose total cumulative sales are relatively high by now.
Going forward, Microsoft is expected to leverage the attraction of Xbox Cloud Gaming to draw consumers to purchase the Xbox Series X/S through the Xbox All Access installment payment plans. This is also why Microsoft is aggressively collaborating with and acquiring game developers, as having more games playable through Xbox Cloud Gaming will make the service more attractive to consumers.
Xbox Cloud Gaming will likely reduce the willingness of existing Xbox One owners to buy new consoles
Microsoft’s core strategy revolves around its platform and service. By attracting consumers through service first, Microsoft will then be able to raise the sales of its hardware. Put another way, increased hardware sales result in an expanded user base, which will further result in increased earnings through both platform and service.
Hence, the initial sales performances of the Xbox Series X/S are not a point of focus for Microsoft. If the company is able to expand its user base, Microsoft does not even necessarily need to ensure the popularity of the Xbox Series X/S. It can instead potentially release other modified models that are better suited for game streaming services or even simpler, dedicated game streaming boxes. However, in consideration of other services such as Xbox Live Gold, as well as earnings from players that do not subscribe to game streaming services, Microsoft must still maintain a range of game consoles that can compete with the PS5 in terms of specs.
Although Microsoft’s core strategy is in alignment with its software services for the PC market, such as Office and Windows, the heavy push for Xbox Cloud Gaming will inadvertently lower the console replacement demand of existing Xbox One owners. Furthermore, the difference in hardware specifications between the Xbox Series X and Xbox Series S will also complicate the software development process for game developers, in turn reducing the willingness of developers to create games for the latest Xbox consoles and affecting the sales performances of the Xbox Series X/S.
Therefore, it makes sense that despite the similar specs between the Xbox Series X and the PS5, their sales numbers differ wildly. At any rate, the Switch will remain the sales leader in the game console market in 2021, with the PS5 experiencing a gradual sales growth and the latest Xbox consoles lagging behind.
TrendForce’s latest investigations find considerable discrepancy between prices for graphics DRAM products in the contract market and in the spot market. Quotes for graphics DRAM products continue to rise in the contract market as the severe undersupply situation persists. Furthermore, the supply fulfillment rates for orders from some medium- and small-size clients have been hovering around 30%. This undersupply situation is expected to persist through 3Q21, during which graphics DRAM contract prices are expected to rise by 8-13% QoQ. Regarding the spot market, on the other hand, the value of ETH experienced continued uptrend from the start of 2021 until May, thereby driving up the demand for graphics cards, regardless of them belonging to the newer or older series. At the height of the graphics card boom, spot prices of graphics DRAM products were up to 200% higher than contract prices. Demand from miners for graphics cards are expected to be relatively muted before cryptocurrencies return to their previous bullish trends, and the gap between the spot and contract prices of graphics DRAM products will likely narrow in 3Q21 as a result.
TrendForce expects four key factors to continue driving up graphics DRAM prices in the contract market. First of all, demand in the PC market remains high, particularly for gaming products. Secondly, DRAM suppliers’ production capacities allocated to most clients are constrained by the fact that Nvidia bundles its GPUs with graphics DRAM, meaning DRAM suppliers have prioritized capacity allocation to Nvidia as opposed to smaller clients. Thirdly, both the Xbox Series X and PS5 are equipped with GDDR6 16Gb chips, which is different from GDDR6 8Gb chips. As the two chips are non-interchangeable, once DRAM suppliers commit their production capacities for one, they can no longer produce the other using the same batch of wafers. Finally, since there has been a resurgence of server DRAM orders, DRAM suppliers are still prioritizing the production of these products as they are a mainstream market product. As various products each compete over limited DRAM production capacities, graphics DRAM contract prices are expected to undergo an increase going forward. In particular, medium- and small-size OEMs/ODMs may likely face double-digit percentages increases.
Sharp drop in values of cryptocurrencies has caused spot prices of GDDR5 and GDDR6 products to fall
Regarding the spot market, although spot prices for GDDR6 products has been undergoing a slight drop since May, they are still nearly 100% higher than the average contract prices. Conversely, there is almost no difference between spot and contract prices for GDDR5 products. Looking at the reasons behind the slide in spot prices of graphics DRAM products, a sharp drop in the values of cryptocurrencies is the most significant contributor apart from the excessively large difference between spot and contract prices. The recent bearish movement of cryptocurrencies has resulted in a sharp drop in incentives for miners. In turn, this has led to a corresponding drop for older graphics (such as the Nvidia GTX 1660, which features GDDR5 DRAM), which have no other sources of demand. GDDR5 prices hence entered a significant decline. With regards to newer graphics cards, however, there is still a baseline level of demand for them thanks to purchases by gamers. Furthermore, these newer graphics cards, much like the new generation of game consoles, feature GDDR6 DRAM. Therefore, due to the current demand for GDDR6 products, their price drop in the spot market is lower compared to GDDR5 products.
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